In November of 2011 the Government of Canada, along with the governments of Quebec and Ontario officially released the final report on the high-speed rail study for the Quebec City-Windsor Corridor.
Without delving into the details – which can be read in summary on High-Speed Rail Updates - the Federal Government said in a news release:
“The study found that high-speed rail is technically feasible in the Quebec City-Windsor Corridor but will require significant public expenditure. With these study findings, the Government of Canada will take the time necessary to carefully consider possible next steps.”
This ambiguous statement was followed by more blunt remarks by politicians such as Ontario Transport Minister, Denis Lebel who told the Windsor Star “In these fiscal circumstances a new project of this scope is not a priority for our government” a reversal of the Provinces previously supportive position.
While this may be a belated response to the issue, on reflection, it seems the decision to leave the Hi-Speed Rail Proposal dangling without clear direction to proceed is the most significant and short-sighted decision made in Canada in 2011 of relevance to our readers. Development of a hi-speed rail service in all likelihood would have profound benefits for the real estate and infrastructure of the locations it would service, in addition to providing transportation to the millions of people who would take the train.
Following is one of many reasons for supporting it:
There has been a lot of news recently about the extra-ordinary foreign investment capability of Canadians pension funds most recently in a January 12 article in the Financial Post. While it is nice, and by all accounts essential, that the Funds invest in foreign markets to fulfill their responsibility to pensioners, their level of activity elsewhere begs the question what investments are they making in Canada?
In the case of the $152-billion CPP Investment Board this answer is easily gleaned from their Plan’s website where it states, “The CPP Investment Board invests in more than 3,100 public companies around the world, including 500 Canadian companies.” In other words, fewer than 20% of the companies in which the Fund is invested are in Canada.
While Canadian pension funds are making a name for themselves as great investors in other countries and we can be genuinely grateful for their expertise, we are bombarded by reports if not the experience, of failing infrastructure in Canada.
The state of Canada’s infrastructure is described in a March 2009 report Canadian Infrastructure Crisis Still Critical found on The Canadian Council for Public Private Partnerships website (Download PDF). It is an interview with Professor Saeed Mirza of Civil Engineering and Applied Mechanics at McGill University. In the interview Professor Mirza states “Canada’s infrastructure is in a very dire state”. He estimated the national infrastructure deficit is to be between $350 and $400 billion. This level of financial requirement is clearly only grazed by the recession related Federal stimulus funding of about $50-billion that is now coming to an ended.
One of the notable points made in the interview by Professor Mirza is that the scope and cost of Canadian infrastructure requirements is more than our governments can collectively afford. This will come as no surprise to Canadians who negotiate the bad and deteriorating roads, odd drinking water, polluted waterways, rickety or non-existent transit, aging health care facilities and so on. Furthermore, at this point Canadians are also feeling taxed out – most recently a 13% HST in Ontario – at a time when they have also accumulated significant personal debt.
Given that Governments can’t afford to upgrade and replace infrastructure the private sector including Pension Funds are increasingly being fingered to help address the problem. The difference between Pension Funds and other private capital is that it is clearly ‘our’ money particularly in the case of CPP.
The Canadian commercial real estate industry is increasingly experiencing the benefits of what is known as TOD or Transit Oriented Development. It makes sense for many well-known and obvious reasons – it creates higher density development adjacent to transportation nodes that help support the cost and functioning of the transit as well as the surrounding commercial, residential and infrastructure requirements. It is a win win all around.
Not surprisingly private investment is flocking to TOD locations. Furthermore government real estate companies such as Build Toronto are capitalizing on the opportunity they represent as a way of developing and selling municipal property at a premium – sales that help to fuel empty government coffers.
While some infrastructure investments may require significant public involvement to get off the ground others like many TOD’s across the country are attracting private capital. These locations are highly attractive real estate investments that are proving to be viable and successful undertakings that generate multiple bidders and participants.
The Federal and Provincial governments report about the high-speed rail service between Quebec City and Windsor was conducted by EcoTrain – a group of international consulting firms comprising Dessau, Deutsche Bahn International, KPMG, MMM Group and Wilbur Smith Associates on behalf of the Ministries of Transportation for Canada, Ontario and Quebec. EcoTrain consider the potential of operating trains along the corridor at top speeds of 200 kph, or electric trains at speeds up to 300 kph.
The high-speed rail service, according to the report would attract 10 to 11-million passengers, generate $1-1.3-billion dollars a year and cost in the area of $20-billion to construct. The corridor construction can be phased to service the most populated sections first – Toronto to Montreal – reducing the initial cost to under $10-billion. It would replace the existing VIA service and create a currently non-existent dedicated rail line for passenger use.
Is a $20-billion investment distributed amongst several investors such as Canadian pension funds really ‘too’ expensive? Given the experience of municipal TOD can we not assume that an inter-municipal rail service, its stations and municipal stops would also attract private investment of the same nature and proportion and enhance the financial viability of the rail service.
If $20-billion is the barrier to developing the High Speed Rail line (and based on the conclusion of EcoTrain it is the principal reason) then we urge all Canadian pension funds and the Federal Government to undertake to resolve the financial issue and immediately commence with this project.
If proceeding with the Hi-speed Rail Corridor means shifting funds targeted for foreign investments and taking a lower rate of return we think it should be considered. Investment, particularly one with a long-term payoff, is to some extent a self fulfilling prophecy.. if you invest in your own country it will benefit, grow and prosper .. if you invest the same dollars elsewhere that country benefits not you.
By assigning pension fund investments currently allocated to foreign buys to the rail line existing commitments to the domestic infrastructure deficit and projects would not be impacted.
Finally, would you rather have your pension fund invest in a foreign country or in Canada in at least one, if not more, Nation building projects like the Quebec – Windsor hi-speed rail service?